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The rupee is unlikely to gain over the next year due to expectations that the Federal Reserve will raise interest rates by middle of next year, while the Chinese yuan will probably rise, a Reuters poll showed.
The rupee was trading around 61.50 a dollar on Friday. But in a month's time the rupee is likely to stand at 61.46 per dollar, according to the poll of 26 currency strategists conducted this week.
The poll predicted the rupee at 61.70 per dollar in six months and 62.36 in a year.
Those predictions are more bearish than forecasts in the October survey and come despite the stock market rallying 32% since the start of this year on robust capital inflows.
"It is the move in the dollar that will be the key driver of emerging currencies," said Abhishek Upadhyay, economist at ICICI Securities PD at Mumbai.
"The rupee is better placed relative to its emerging market peers as inflationary pressures have eased even with a cyclical recovery underway."
Indian consumer inflation eased to 6.46% in September, the lowest print since the measure was introduced in January 2012, while after a long slowdown growth picked up in the April-June quarter, accelerating to 5.7% - the fastest pace in two-and-a-half years.
A surge in the US dollar could precipitate a slump in the currencies of Turkey, South Africa and Brazil similar to the rout seen between late 2013 and early this year when the Fed announced intentions to taper its stimulus.
Last week the Fed drew the curtains on its half-a-decade long multi-trillion dollar stimulus programme.
A Reuters poll on Wednesday showed that while some emerging market central banks may raise interest rates over the next year to protect their currencies, policy tightening will at best slow the rate of depreciation.
YUAN TO RISE
China's yuan is expected to slowly strengthen over the next 12 months, according to the poll.
It predicted that the yuan would trade at 6.12 per dollar in one month, then 6.08 in six months and 6.04 in a year.
On Friday, the yuan opened at 6.1165 per dollar. It has gained 0.70% against the US dollar over the past five weeks at a time when the greenback has booked broad gains against most currencies.
China's central bank on Thursday pledged to maintain modest policy support to help the world's second-largest economy weather the economic slowdown but stressed it will not flood markets with cash.
